Educational Articles

Do You Know What You’re Invested In?

Kathryn M. Drew
| April 03, 2011

Mutual fund investors may have more in common than they think. In fact, many of the largest U.S. mutual funds hold considerable positions in the same stocks, and it’s no coincidence that the same names keep popping up. While the objectives of funds may vary, most mutual funds have the same overall goal—capital appreciation. So while different funds employ numerous strategies based on unique objectives, there is a common denominator in that fund managers typically focus on stocks with historically strong performance.

A review of the largest U.S. mutual funds reveals that Dow 30 companies and other big name stocks, such as Apple Corp. (AAPL), tend to be common holdings. These stocks appear to be staples that many investors have an unintentional stake in if they invest in mutual funds. For example, if an investor holds a position in one of the top 10 mutual funds in the United States, chances are he or she is also invested in Apple or Microsoft (MSFT – Free Microsoft Stock Report). JPMorgan Chase (JPM – Free JPMorgan Chase Stock Report) and Google (GOOG) are also popular picks among fund managers.

Similarities among the holdings of large mutual funds are interesting for several reasons. First, the common thread comments on which companies in the market tend to be the most attractive investments. Fund managers select stocks based on which companies they believe are likely to perform well, therefore, commonalities among picks in large funds may signal standout issues.

Equities that tend to be favored by large mutual funds may be of interest to individual investors, as well. Following the top investments of these funds can help paint a decent picture of which stocks in the market are worth looking into, and can serve as a guide to those looking for high performance issues. The common holdings among the largest mutual funds are essentially a VIP list of stocks—the companies fund managers believe are most likely to outperform the market.

In addition, many mutual fund investors may invest in individual stocks on their own, potentially increasing their position in certain companies unintentionally. For example, if an investor has 5% of his or her individual portfolio invested in Google, but also invests in a mutual fund that holds stock in the company, the investor’s stake in Google may be higher than intended. It is important to consider how your overall investments are weighted, making it easier to manage your positions. It may be wise for investors to consider reviewing the holdings of their mutual funds and begin tracking how companies are weighted in their overall investment portfolio.

All told, it is most important for investors to fully understand where their money is invested. Odds are if you are a mutual fund investor, you have a stake in some of the most well known companies in the market. It may be prudent to take a closer look at your holdings and monitor the performance of the companies that you have a large stake in.

At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.